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Caveat Emptor: Buying and Selling a Cultivation Facility, Part Two

4 minutes reading time (882 words)

By Ryan Douglas

Limited license states present two distinct opportunities for cannabis cultivation entrepreneurs.

First, the prospect of launching and operating the cultivation business as an ongoing source of revenue, and second, the chance to sell it to another company.

The sale of the license alone can be tremendously valuable, commanding a high price even when there’s no production facility attached. In these instances, there’s not much the licensee can do to make the sale more appealing. The cultivation license will command a high price without any cultivation involved.

But this is more the exception than the rule. Most entrepreneurs will want to take steps to increase the value of their cultivation assets.

In Part One of “Caveat Emptor,” I highlighted key factors that buyers should consider when purchasing a cultivation business. In Part Two, I examine the other side of the coin; what sellers can do to make their sites more attractive to potential buyers.

If you plan on selling a licensed cultivation business, consider the following tips as you prep your site to garner an excellent asking price:

Have a crop to show off, even if it’s your first

Fill the production site with plants, even if you don’t intend to sell them. It’s the difference between walking into an empty house for sale and one that has been staged to attract buyers and warm the atmosphere. Home buyers want to picture themselves cooking for friends or watching their kids play in the yard. Likewise, the buyers of a cultivation site want to imagine themselves growing a successful crop. Seeing grow rooms or greenhouse bays packed full of healthy plants can help a buyer make the leap.

Sell your plants, too

Offer to sell your genetics along with the site. If you have unique, exclusive, or rare genetics, include them in the offer. The sale of your plants will only constitute a fraction of the purchase price, but it can be especially attractive to buyers that don’t have existing operations from which to pull plants.

It could take the buyer six months or more to establish an in-house propagation program capable of generating hundreds or thousands of cuttings each week. Purchasing the plants allows the buyer to enter the market as quickly as possible, which is likely the driving force behind the transaction in the first place. If you have a refined genetic library with production protocols specific to your site, sweeten the pot by throwing them into the deal.

Buy more facility than you need, but only outfit part of it

You don’t need to take on the expense of outfitting an entire site to make it an attractive acquisition target. If you sell to a larger company, they already have the funds to expand.

Ensure that future growth will be possible by focusing on:

Space – Could a buyer expand your production area by two or three-fold by building outwards or upwards? Power – Expansion will require more energy, but this may be easier said than done. Eighteen-month lead times for power upgrades aren’t uncommon, and if you’re digging up roads and re-routing traffic, things can get complicated. Make sure additional power can be made available within a reasonable period of time.  Zoning – Even if the building is sufficient and power can be upgraded, local laws may prohibit expansion. If creeping beyond the existing footprint puts you at odds with local zoning regulations, the only way to expand is up. Furthermore, locals may not welcome a substantially larger grow operation in their backyard. Make certain the next operator can expand beyond the existing footprint.

Be mindful of GMP and GACP design principles

Build your facility with Good Manufacturing Practices (GMP) and Good Agricultural and Collection Practices (GACP) in mind, even if you’re not seeking those certifications. The buyer of your site will likely be around for federal legalization, and a facility that doesn’t require massive retrofits to comply with federally-mandated quality assurance regulations can present an attractive buying opportunity. Avoid exposed wood in cultivation rooms and post-harvest areas and prevent product cross-contamination by intelligently engineering the flow of people and plants throughout your facility.

Invest in precision technology

Cultivation site operators should anticipate increased scrutiny of their energy consumption in the coming years, so investments that minimize your facility’s carbon footprint will help to establish the next owner ahead of the pack. Installing LEDs instead of HPS lamps is a no-brainer but think beyond the obvious to crop steering technologies that allow growers to provide plants with exactly what they need when they need it, and nothing more. State-of-the-art cultivation technology can easily reach six figures, so be sure the value of precision grow technology is reflected in the sale price.

If you’ve decided now is the time to exit, or you’re building your cultivation business to sell it, keep this advice in mind: a cultivation facility is just another piece of real estate. Clean, beautiful, and  functioning real estate commands the highest selling price. A cannabis grow operation is no different.

In Case You Missed It

Caveat Emptor: Buying and Selling a Cultivation Facility, Part One

The post Caveat Emptor: Buying and Selling a Cultivation Facility, Part Two appeared first on Cannabis Business Executive - Cannabis and Marijuana industry news.

(Originally posted by Ryan Douglas)


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